Morningstar Advisor - February/March 2011 - (Page 68)

Screens Benchmarks? What Benchmarks? By Karin Anderson Try this screen for core funds that take the road less travelled. Actively managed funds that don’t move in lockstep with the overall market may be appropriate portfolio anchors for certain clients, while others may be more comfortable using them to complement core index offerings. These funds tend to be run by managers who don’t let benchmarks guide their stock-picking or sector-weighting decisions. You can use this straightforward screen in either Morningstar Advisor Workstation or Morningstar Principia to turn up intriguing large-cap funds which have delivered compelling returns without following an index. Special Criteria And ( Morningstar category Or Or Or Or Or And And And Morningstar category Morningstar category Morningstar category Morningstar category Morningstar category Purchase Constraints Min Initial Purchase Analysis 5 Distinct Portfolios Only 5 Large Value 5 Large Blend 5 Large Growth 5 Mid Value 5 Mid Blend 5 Mid Growth 5 Closed–New Investment / < 25,000 5 NA / ) And R2 3 Yr < 85 To set up the screen, narrow the field to domestic large- and mid-cap funds that are open to new investments of $25,000 or less and followed by Morningstar Analysts. Next, set the three-year R-squared measure, which represents the percentage of a fund’s performance that can be explained by movements in a benchmark index, to 85 or less. (The median R-squared for all U.S. large-cap funds clocked in at 94 for that period.) In the case of all U.S. equity funds, the S&P 500 is used as the standard index, and an R-squared of 100 indicates that the fund’s performance moved in tandem with that benchmark. 68 Morningstar Advisor December/January 2011

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2011

Morningstar Advisor - February/March 2011
Letter From the Editor
First, Do No Harm
Do You Use Active or Passive Investment Strategies?
Best of Both Worlds
How to Build an Index
Accountable Investor
Nice Guys Finish First
Four Picks for the Present
Investment Briefs
A New Guardrail Against Risk
Tech Loosens the Purse Strings (a Bit)
It’s More About Costs Than Active or Passive
Play Your Stars
In Between Active and Passive
Selling Beta as Alpha
The Weighting Game, and Other Puzzles of Indexing
Leaving the Nest
Redefining Credit Risk
Another Vote for Market-Based Credit-Risk Measures
Big Opportunities in Small-Cap Stocks
Benchmarks? What Benchmarks?
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
VA Sales Slide, but Assets on the Rise
Indexing’s Lunatic Fringe

Morningstar Advisor - February/March 2011